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MBPF 912-MBAPower-SEM-II: Assignment: Power Financial Management- Assignment I- Jan-June ...

http://lms.ddn.upes.ac.in/mymoodle/mod/assignment/view.php?id=21253

University of Petroleum & Energy Studies Center for ContinuingEducation (CCE) Assignment No.:1

Program

Subject Name

Subject Code

POWER FINANCIAL Executive MBA- Power Management MANAGEMENT MBPF 912

Note:All sections are compulsory. SectionA Short Notes on 4 topics/questions (5 marks each) Total 20 marks Q1. Define capital structure. Discuss the factors whichinfluence the planning of capital structure? Q2.What are the important determinants of Working Capital Management? Q3.What is the relevance of Time value of money in financial decision making? Q4. What do you understand by Cost of Capital,describe how to calculate the specific cost of Capital? SectionB Long Notes on 3 topics/questions (10 Marks each) Total 30 marks Q5 .The earnings per share of a company is Rs 8 and the rate of capitalizationapplicable is 10%. The company has before it, an option of adopting (i) 50 (ii)75 (iii) 100 per cent dividend payout ratio. Compute themarket price of the companys quoted shares as per Walters Model if it canearn a return of (a) 15, (b) 10 and (c) 5 percent on its retained earnings.What did you concluded? Q6. The balance sheet of company X stood as follow as on March 31, ofthe current year: CurrentLiability 2000 current assets 8000 Long term funds 22000 fixed assets 16000

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27-03-2012 11:20

MBPF 912-MBAPower-SEM-II: Assignment: Power Financial Management- Assignment I- Jan-June ...

http://lms.ddn.upes.ac.in/mymoodle/mod/assignment/view.php?id=21253

------------------------------------------------------------------------------------24000 24000 If current assetsearn 2%, fixed assets earn 14%, current liability cost 4% and long term fundscost 10%, calculate: a) Totalprofits on assets and the ratio of current assets to total assets b) Thecost of financing and the ratio of current liabilities to total assets, and c) Netprofitability of the current financing plan. Q7. A company needs Rs. 12 Lacs for the installation of a newfactory which would yield an annual EBIT of Rs. 2 lacs. The company has the objectiveof maximizing the EPS. It is considering the possibility of issuing equity shares plus raising a debt ofRs.200000, Rs.600000, Rs. 1000000. The currentmarket price per share is Rs.40 which isexpected to drop to Rs.25 per share if the marketborrowing were to exceed Rs. 750000. Cost of borrowing is indicated as under: UptoRs.300000 10%p.a BetweenRs. 300001 and Rs.750000 14%p.a BetweenRs.750001 and Rs.1000000 16%p.a Assumingtax rate of 50% work out the EPS and the scheme which would meet the objective of the management. Section C Case Studies/Caselets/Situational questions(25 Marks each) Total 50 marks Q8. The following data are available for the Broadway and Midwaycompanies: UJVNL co. UPCL co. Sales volume 10000units 10000 units Selling price per unit ofoutput Rs.200 Rs.200

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27-03-2012 11:20

MBPF 912-MBAPower-SEM-II: Assignment: Power Financial Management- Assignment I- Jan-June ...

http://lms.ddn.upes.ac.in/mymoodle/mod/assignment/view.php?id=21253

Variable cost per unit ofoutput Rs.120 Rs.150 Fixed operating cost perunit of output Rs.60 Rs.30 Equity Rs.300000 Rs.600000 Preference shares Rs.100000 -Debt Rs.600000 Rs.400000 Interest rate ondebt 16.25% 15% Dividend rate onpreference share 13% -Tax rate 60% 60% Required: 1. Calculate the Returnon Equity, Degree of Operating Leverage, Degree of Financial Leverage, Degree of Combined leverage, operatingbreak-even point ,financial break-even point for each company. 2. As a financial analystwhich of two companies would you describe as more risky? Q9. The initial investment outlay for a capital investment projectconsists of Rs. 100 lakhs for plant And machinery and Rs. 40 lakhs for working capital. Other details aresummarized below : Output1 lakh units of output per year for years 1 to 5 Selling priceRs. 120 per unit of output Variable costRs. 60 per unit of output Fixed overheads (excluding depreciation)Rs. 15 lakhs peryear for years 1 to 5 Rate of depreciation on plant and machinery25% on WDVmethod Salvage value of plant and machinery Equal to the WDV atthe end of year 5 Applicable tax rate40% Time horizon5 years

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27-03-2012 11:20

MBPF 912-MBAPower-SEM-II: Assignment: Power Financial Management- Assignment I- Jan-June ...


Time horizon5 years Post-tax cut off rate12% Required : (i)Indicate the financial viability of the project bycalculating the net present value

http://lms.ddn.upes.ac.in/mymoodle/mod/assignment/view.php?id=21253

(ii)Determine the sensitivity of the projects NPV undereach of the following conditions: (a)Decreasein selling price by 5% (b)Increasein variable cost by 10% (c)Increasein cost of plant and machinery by 10%

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